Mozo’s 2021 Buy Now Pay Later Report: Aussies have a new go-to for their biggest purchases

Buy Now Pay Later (BNPL) has well and truly captured Aussie consumers’ attention and continues to solidify itself as a serious player in the digital payment game. For a number of years, shoppers have been turning to interest-free platforms like Afterpay, Zip and Humm to purchase items, whether online (42%) or in-store (16%), according to the latest Mozo research. This ongoing shift away from more traditional payment options has prompted our focus on this topic in our 2021 Buy Now Pay Later Report.

Among our many findings, we noted that 42% of BNPL users have been using the BNPL method for three or more years, and over half are turning away from other banking options. But, perhaps, most notable of all is that BNPL shoppers are leaning on the payment method to purchase their most necessary items - big appliances and other household staples like beds.

The numbers in our research also show that:

• 52% of users admit to spending more using BNPL than debit or credit cards
• 33% said BNPL is their go-to pay method
• 13% said they use their debit card less since setting up BNPL
• 6% said the same about their credit card.  
  

Interestingly, for many users, BNPL is not just a replacement for a credit card. Instead, it’s regarded as more of a money management platform, with users more likely to use it in this way in replacement of a debit card or savings.

Indeed, savings accounts, debit and credit cards seem to be backup options for many more people. 

Payments methods users would opt for if Buy Now Pay Later wasn’t available: 

• 53% debit account 
• 41% savings 
• 29% credit card 
  

If Buy Now Pay Later is a form of credit, should we treat it the same?

The massive growth of BNPL has prompted more chatter about credit reporting and regulation within the industry. And consumers are conscious of it. Better standards can only help support the success of BNPL and draw more users toward it.

So, when it comes to BNPL services and regulation, there’s a split view amongst Aussie users. While 46% say BNPL needs to be regulated, another 41% believe the industry doesn’t need to be. This comes after the 2020 Senate Inquiry, which determined that the BNPL industry needn’t follow the same laws as the credit card industry. However, that’s not to say BNPL platforms are completely without a watchdog. 

From March 2021, the Australian Finance Industry Association (AFIA) ‘Code of Conduct’ came into effect, which outlines a range of standards and guidelines around late payment fees, age restrictions and management of customers experiencing financial hardship. And from October 2021, BNPL providers must regularly assess how well fit their products are for their customers under ASIC's ‘design and distribution obligations’. 

BNPL might not be exactly the same as a credit card, but knowing how to best use it is clearly important. 

Credit risks of Buy Now Pay Later: Aussies are okay with it  

BNPL can be an easy way to pay for big expenses in instalments and dodge hefty interest rates, say some users. Such big expenses can be tricky with credit cards, in the view of some shoppers. BNPL services suggest that the instalment set-up of making fortnightly or monthly repayments can help customers better plan their expenses over a spread out period of time. 

On the other hand, BNPL can cause users to accrue unnecessary debt by using services carelessly and negatively impact their credit rating, which could decrease the chances of being approved for other forms of credit, like a home loan, later on. But the truth is, the majority of BNPL users are actually clued into these risks.

Despite 41% of BNPL users admitting to missing at least one repayment, when asked if they were aware that BNPL could affect their credit score, 87% of users responded ‘yes’ (an increase from 75% of users in 2019).

Of those in 2021, 65% make a conscious effort to avoid their BNPL usage causing any impact on their credit history by paying their instalments on time. Meanwhile, 17% admit that they are aware of the effect but sometimes can’t afford to pay on time, while 5% say they simply aren’t concerned about their credit score.

How do Aussies use Buy Now Pay Later?

So, how exactly are people using BNPL? And what are they using it for?

If your mind immediately went to the stereotypical teen or millennial users who rely on BNPL services to shop online for clothes they can’t afford, you might be surprised by the findings of our research.

Based on Mozo’s latest data, most Aussies (65%, to be exact) use BNPL to purchase household necessities. These are big-ticket items like fridges, heaters, new beds, appliances and other functional household items.

The next biggest purchase category (57%) was luxury items, such as designer clothing, jewellery, pet accessories and car accessories. Following this at 28% were essential purchases like food and other items deemed as absolutely necessary to survive.

Our study also found that the most people ever had owing on BNPL, on average, was $698 across all age groups.

How are they buying it?

Contrary to popular belief, people aren’t just using these BNPL services to comfort spend or online shop from the comfort of their own home.

According to our data, these are the most common methods in which Australians are making BNPL purchases:

• 16% in a physical store
• 42% online
• 37% browsing BNPL app or website
• 5% social media
  

In 2021, we’re seeing that the ways in which people use these services are significantly diversifying, too. This is also reflective of the idea that Buy Now Pay Later is not just a fad but rather a standard payment option that’s here to stay.

Beating Buy Now Pay Later stigma:

Although often likened to the original Laybuy service, once popular with some shoppers, does the modern-day Buy Now Pay Later carry the same stigma? That stigma, for better or worse, was that the traditional Laybuy method was for those who couldn’t make the purchase outright.

According to our research, however, the new service is perceived very differently. For example, when asked whether they’d avoided using BNPL when shopping with other people, only 40% of survey respondents answered ‘yes’. More notably, when asked whether they had a problem using BNPL in front of anyone, 68% said ‘no’.

At the same time, a total of 19% of respondents admitted to hiding BNPL purchases from loved ones. Of that group, 9% confessed to hiding BNPL purchases from their parents and 10% from their partner.

Savvy ways to use Buy Now Pay Later

It appears that the appeal of Buy Now Pay Later services doesn’t stop at its main selling point - the convenience of having the ability to make a purchase and then pay it off in numerous smaller (often interest-free) instalments. 

Many Aussies are finding money-saving opportunities, among other ways, to use these services to their advantage.

Try Now, Return Later:

One of the many woes of online shopping is going through the process of picking, placing and waiting for an order, only to find it doesn’t fit once it’s arrived. Then it’s often a matter of going back and forth with customer service to arrange a swap for a new size only to risk doing it all again.

However, it appears that Buy Now Pay Later has given people a way around this, with many Aussies using BNPL to order multiple sizes/items and then returning that which doesn’t (often before the second payment is due).

We found that as many as 30% of users use BNPL to order multiple items at a time with the intent of returning some. Surprisingly, this shopping hack could potentially be the motivating factor for many in actually picking a BNPL service.

Our research found that the most important feature for 21% of Aussies when choosing a BNPL provider is that they offer an easy returns process. This lines up fittingly with the Try now, buy later trend.

At the end of the day, BNPL appeals to users in so many more ways. It’s convenient, easy to access, and, of course, low cost - when used successfully. Indeed, 44% of respondents said the most important feature to them was finding a free to use service with no account keeping fee.

If you want to learn more, head over to our Buy Now Pay Later hub for more information and provider options!

This report was a collaboration between Mozo money writers, Polly Fleeting and Rhianna Dews.